Gyroscopic Investing

etfreplay has a new backtesting feature that uses Ratio Moving Averages.  I think the short explanation is that it takes a ratio between two securities and then puts a moving average on it.  As an example I ran SHY vs PTTRX (Pimco's Total Return Fund).  Using a 10 month SMA, it would have you in which ever fund was above the MA. 

From August of 2002, it would have had you in PTTRX all but 23 months over that time frame.  Most switches into SHY were 1-2 months with 7 months being the longest (around summer/fall of 08).

The results were a max DD of -3.8% compared with -1.2% for SHY alone (PTTRX had a Max DD of -4.6%). 

The returns however were +67.3% from 08/2002 until now.  For comparison SHY was +28.2%

This might be a little more aggressive way to hold your "cash" portion if you were inclined and would likely increase your returns slightly over time. 

This is something I may ponder for that part of my PP.

Putting PTTRX into the portfolio full time backtested about 1% higher than a standard PP on etfreplay from Nov-2004 (GLD's inception).  It also had a better Sharpe ratio but had a 1% deeper draw down. 

That is with no switching, just a plain substitution, so the return if you switched with SHY.  I would say using a switching process with PTTRX/SHY would yield at least an extra half percent on your portfolio return.

That may not be worth it if you have a small portfolio where trading costs could eat up some of the gains.  However on a larger portfolio it would be worth it, IMO.  Or if you can trade commission free.

Also, Pimco now has a Total Return ETF (symbol BOND).  It is new and hasn't exactly tracked PTTRX/PTTAX but is outperforming.

Yahoo Finance says PTTRX has a minimum investment of $1,000,000. I'm out. 
Maybe PTTAX?

As a follow up PTTAX is the investor version of PTTRX, which is mostly for institutions I believe.  I am out too from the $1mm range...lol

It doesn't necessarily have to be Pimco's total return funds either.  I ran a similar test with AGG.  Slightly lower return but still almost double SHY alone. 

Using that strategy with TIP would have worked pretty well too.  Over double the return of SHY alone, with just a 4.1% Max DD.

Using TIP/SHY this would have you in TIP about 75% of the time from Jan 1, 2004 until today.

clacy wrote: As a follow up PTTAX is the investor version of PTTRX, which is mostly for institutions I believe.  I am out too from the $1mm range...lol

It doesn't necessarily have to be Pimco's total return funds either.  I ran a similar test with AGG.  Slightly lower return but still almost double SHY alone. 

Using that strategy with TIP would have worked pretty well too.  Over double the return of SHY alone, with just a 4.1% Max DD.

Using TIP/SHY this would have you in TIP about 75% of the time from Jan 1, 2004 until today.

Wouldn't using AGG (which is a total bond fund) as the cash portion be effectively extending the duration of your portfolio due to the long-term bonds and now an intermediate (AGG) bond fund? That would work great over our falling interest rates for backtesting but I would think you wouldn't want that if interest rates were rising. You'd want the SHY or something of a shorter bond type I would think.

1NV35T0R wrote:

clacy wrote: As a follow up PTTAX is the investor version of PTTRX, which is mostly for institutions I believe.  I am out too from the $1mm range...lol

It doesn't necessarily have to be Pimco's total return funds either.  I ran a similar test with AGG.  Slightly lower return but still almost double SHY alone.  

Using that strategy with TIP would have worked pretty well too.  Over double the return of SHY alone, with just a 4.1% Max DD.

Using TIP/SHY this would have you in TIP about 75% of the time from Jan 1, 2004 until today.

Wouldn't using AGG (which is a total bond fund) as the cash portion be effectively extending the duration of your portfolio due to the long-term bonds and now an intermediate (AGG) bond fund? That would work great over our falling interest rates for backtesting but I would think you wouldn't want that if interest rates were rising. You'd want the SHY or something of a shorter bond type I would think.

True, but keep in mind that within 1-2 months, of rising rates, the AGG/SHY ratio would switch to SHY's favor and then you would be in SHY until it changed back.

clacy wrote: True, but keep in mind that within 1-2 months, of rising rates, the AGG/SHY ratio would switch to SHY's favor and then you would be in SHY until it changed back.

Thanks for researching this, clacy.  How would you get notifications of the need to switch?  Would you have to setup your own spreadsheet tracking the moving average, or does ETFreplay have the ability to setup email alerts?

This is very interesting; thanks again for thinking outside the box.